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Technology Stocks : Nokia Corp. (NOK) -- Ignore unavailable to you. Want to Upgrade?

To: A.L. Reagan who wrote (985)	7/25/2001 11:49:45 PM
From: Eric L	Read Replies (1) \| Respond to of 9255

A. L., Good post. I enjoyed reading it. I think you have the issues going forward, pretty well pegged. << The first set of unattributed #'s looks a lot like Chase H&Q. >> You got it. Actually (officially now) JPMorgan H&Q (J.P. Morgan Chase & Co.) which rates Qualcomm a Long Term Buy, and Ed Snyder's name is on the report along with 3 other analysts. << The Asia/Pacific numbers look like 100% Korea, implying zero for the PRC, ... even doubling them for an above-average Korean 50% replacement rate. >> I think there is a potential upside in Korea and perhaps Japan, maybe even US to squeeze another maybe 3 million subs out this year. Sub wise I'm counting on relatively little appreciable PRC although hopefully some ASICs make it out the door. It has been said that in Korea handsets are replaced every 6 months (like Japan) when subsidies are in effect, and when they are not they are replaced every 6 years. <g> << The second set (Roberts, a guess) does look more realistic. >> Bad guess. <g> It's always somewhat bearish on QCOM, CSFB, who has a Hold rating on Qualcomm. They add some interesting comments on China Unicom: >> China - Update from our Asian Service Provider Analysts NiQ Lai, one of our service analysts in Asia, recently led a trip to several China Unicom CDMA deployments. The following represent some key highlights from a visit to the Liaoning Province: Coverage versus Capacity. Liaoning has recently started its CDMA rollout. The first phase of CDMA rollout includes installation of 944 base stations supporting capacity for 1 million subscribers. The first phase focuses on coverage (14 cities and 44 municipalities) instead of capacity. Cost for 2G Deployment. Management expected overall capex/sub to be around $180, comparable to the incremental cost of deploying GSM1800 (Unicom's GSM900 spectrum is essentially full in the urban areas). The $180 capex/sub is split, with roughly $100/sub Capex for the core network and $80/sub for installation and support costs. Upgrade Cost for 1X. The site visit confirmed the deployment is IS-95A (2G CDMAOne circuit-switched) provided by Lucent. Management expected the incremental upgrade cost from IS-95A to IS-95C (CDMA 1x, 2.5G packet-switched) to be around 5-10% of the total cost of construction. Customer Credit Arrangement - Unicom Liaoning has recently worked with the China Construction Bank and the China Agricultural Bank(2 of the 4 largest banks in China) on an automatic debit scheme for customers. Under this scheme, Unicom Liaoning automatically debits the account of a Unicom subscriber on a daily basis based on that customer's usage that day. By automatically debiting the customer's savings account, Unicom expects to improve cash flow and reduce bad debt. Marketing Challenges. Unicom management acknowledged the difficulty of targeting the high-end users with a greenfield CDMA network. Management identified two strategies to position the CDMA service: Content and applications - Management is trying to identify and develop bandwidth-hungry applications to leverage the high data actual throughput of CDMA 1x (Early throughput achieved on networks in Korea is 70 kbps) Customer service - Management acknowledged the current lack of mobile number portability would be a hurdle for high-end users to migrate across different networks. The company is currently considering various post-sign-on services including concessionary period of 1 to 2 months during which customers can divert its current number to the new number (Unicom) without having to pay both operators. Another customer service includes sending automatic SMSs to the customers' contacts, on behalf of customers, to notify the change to a new mobile number. From our telecom services counterparts' recent tour of China Unicom, we now have evidence of the carrier's CDMA deployments. We are not anticipating the heavy 5 million subscriber/month rates that Unicom and China Mobile are currently achieving on existing GSM networks. With the Chinese subscriber base now reaching 10% penetration at 120 million subscribers, CDMA will be entering a crowded market after two years of booming growth. As most new subscribers are now lower-end prepaid subscribers, Unicom's largest challenge will be attracting high-end customers to a network that initially will have a much thinner footprint built from multiple different foreign and local vendors. We currently expect only a couple million subscribers per year in the first few years, which should generate a few incremental cents per year for Qualcomm's EPS. << I'm taking a wait and see attitude on China Unicom. Despite that, these comments couldn't be much more bearish, but it is always interesting to contrast a Bull and Bear point of view. For a more bullish picture Tim Luke just published "Update On China’s Wireless Markets". here is an excerpt: QUALCOMM: Well Positioned To Capitalize On Greenfield Opportunity In CDMA - Following China Unicom's recent CDMA infrastructure expansion plans, we believe QUALCOMM remains well-positioned to capitalized on a significant greenfield opportunity in China. We note that on May 15th, China Unicom awarded CDMA infrastructure contracts worth an estimated $2-$2.5 billion with plans to build out capacity for 13 million users in 2001 ramping to 50million users in 2002. We believe this represents a significant royalty & licensing as well as chipset supply opportunity for the CDMA innovator, although we note that in the longer term, declining ARPUs may restrain growth in the CDMA market. We note that prepaid subscribers at China Unicom comprise a smaller percentage of net additions than at China Mobile. Luke has this to say about Nokia: Nokia: China ~11% Of Sales YTD Nokia continues to make steady progress in China, with sales in the region now representing around an estimated 11% YTD (China sales represented 10% of sales in 2000). On the handset front, we note that Nokia has generated strong momentum this year, with handset unit sales estimated to be up over 40%. Next year, however, we believe that similar growth rates may prove elusive given the shift to lower end handsets and increased competition. We highlight that vendors in the region, including Nokia, are likely to introduce an entry level handset around $120 vs. phones which have historically averaged significantly higher prices. While we recognize that Nokia may be more exposed, on the margin, to slowing GSM momentum in China we believe that a potential entry into the CDMA handset market could present a compelling opportunity. In the wireless infrastructure arena (12% NOK sales in 2Q), we believe that Nokia may continue to aggressively target new growth opportunities as operators in China seek to upgrade/expand their GSM/GPRS networks. In general, we are encouraged that Nokia is able to generate operating margins in its handset and infrastructure businesses broadly in line with divisional averages. While we remain cautious on Nokia near-term, we retain our 2 Buy rating given its strong long term positioning in both the handset and infrastructure market. - Eric -